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Title of pageUniversity of Oxford Research

The Future of Real Estate Transactions

FUTURE OF REAL ESTATE INTIATIVE

THE FUTURE OF REAL ESTATE TRANSACTIONS WWW.SBS.OXFORD.EDU 1

THE FUTURE OF REAL ESTATE TRANSACTIONS:Technology, innovation and the real estate conveyancing process

“If you always do what you always did, you will always get what you always got.” (Anon)

For many, this quotation could be fairly adopted as a criticism of a technology-averse and outdated

real estate transaction process in England and Wales.

This report seeks to provide an objective view of the short to medium term potential for change. We

highlight inefficiencies within the current transaction and conveyancing processes in England and

Wales, we examine the reforms that are possible given recent and upcoming technological and social

transformations, and we identify the blockages that are most – and least – likely to be overcome

through digital innovation.

Source: New Statesman, 2018



This report has been compiled with the assistance of Bryan Cave Leighton Paisner, CBRE and Her

Majesty’s Land Registry. We are sincerely grateful for their expert support and would like to thank all

who have contributed to this report. We would like to clarify that any stated opinions, and any

remaining errors, are our own.

We are grateful to our partners in the Oxford Future of Real Estate Initiative (Arcadis, Bryan Cave

Leighton Paisner, CBRE, The Crown Estate, EY, Nuveen Real Estate, Redevco, and UBS) for their

financial support.

The Oxford Future of Real Estate Initiative at the Saïd Business School is led by Professor Andrew

Baum and is a collaboration between Oxford academics and industry-leading organisations that aims

to advance knowledge in real estate. Our research is grounded in real-world business questions.

Further information on the research initiative can be found at:

https://www.sbs.ox.ac.uk/research/oxford-future-real-estate-initiative.

Any reference to specific companies or organisations does not constitute a recommendation and is

included solely for illustrative or case study purposes.

We welcome reader feedback and comments, which can be sent to us via e-mail at:

[email protected]

Andrew Saull and Andrew Baum

Saïd Business School

March 2019



Contents

1. Introduction................................................................................................................................5

2. Conveyancing and registration processes .................................................................................7

2.1 Introduction.........................................................................................................................7

2.2 The England and Wales conveyancing process..................................................................8

2.2.1 Digitising the conveyancing process ..........................................................................12

2.2.2 Current technology: data rooms and cloud computing ...............................................15

2.3 England and Wales land registration ................................................................................15

2.3.1 Digitising Her Majesty’s Land Registry.......................................................................17

3. Real estate transactions today.................................................................................................18

3.1 Introduction.......................................................................................................................18

3.2 Causes for delay within the England and Wales conveyancing process: a process map ..19

3.2.1 Analysis of the causes for delay ................................................................................28

4. The future of real estate transactions.......................................................................................30

4.1 Introduction.......................................................................................................................30

4.2 Digitalising the transaction process...................................................................................30

4.2.1 Satellites and drones .................................................................................................30

4.2.2 Blockchain transactions: smart contracts ...................................................................31

4.2.3 Property passports: IoT and BIM ...............................................................................36

4.2.4 Artificial intelligence and machine learning: lease information extraction, AVMs and

instant mortgages, VR/AR .......................................................................................................41

4.2.5 Digitalising land registration: chatbots........................................................................45

4.2.6 Blockchain land registration .......................................................................................48

4.2.7 Analysis of applicable technologies ...........................................................................52

4.3 Barriers to the adoption of technology...............................................................................52

4.3.1 Operational barriers...................................................................................................53

4.3.2 Regulatory barriers ....................................................................................................57

4.3.3 Social barriers............................................................................................................60

4.3.4 Analysis of technology adoption ................................................................................64

4.4 The drivers of change.......................................................................................................65

5. Summary and conclusions.......................................................................................................67

5.1 Summary ..........................................................................................................................67

5.2 Conclusions......................................................................................................................68

Acknowledgements.........................................................................................................................71



References .....................................................................................................................................72

Appendix 1: an example of an HMLR title document.......................................................................83

Appendix 2: international conveyancing comparisons.....................................................................85

Appendix 3: the commercial transaction process using corporate structures and debt....................88

Appendix 4: international land registration comparisons .................................................................89

Appendix 5: a brief history of the English and Welsh land title system ............................................93



1. Introduction

Land shelters us, feeds us, and provides us with space for recreation, for shopping, and for work.

With total global real assets valued at US $238tn (Savills, 2017), land as an investment is a significant

component of the global economy, accounting for between half and three-quarters of each individual

economy’s wealth (World Bank, 2004). How we as a society transfer ownership of this vital commodity

is a matter of political and economic consequence. This report investigates how technology can help

make this process faster and less expensive.

This report is primarily concerned with the institutional commercial real estate investment market.

While the legal principles involved in residential and commercial property transactions are the same,

the scale and level of risk are quite different, and the process is less commoditised.

A commercial land transaction broadly consists of five clear processes involving a host of actors.

Sellers and their agents are responsible for the preparation period and the marketing period required

to establish an asking price and negotiate a deal. One set of solicitors acting for the buyer and another

for the seller are then responsible for the conveyance, which is the administrative process by which

rights over land are created and transferred, with funds moving in the opposite direction. This includes

all necessary legal works during the due diligence period and post-exchange period. Finally, a land

registry must collect land taxes and record the legal ownership during the post-completion period.

The transaction process is then complete.

In Chapter 2, we briefly look at the legal foundations of this process, primarily as it works in England

and Wales, and examine the legislative developments that have taken place to facilitate its

transformation from its origins as a paper based, or analogue, system. We identify the areas of

inefficiency in the current process before examining historical attempts to streamline conveyancing

and land registration through the use of technology.

Advances in computer performance, capacity and connectivity have created new ‘digitised’ methods

of transacting real estate, currently prevalent in commercial conveyancing. Digitisation is the means

through which we convert paper hard copies into unintelligent digital soft copies; data held within

digitised documents are unable to be extracted through computer programmes and require human

interpretation. In practice, digitisation can be thought of as scanning a page, uploading a photo, or

creating a pdf, so as to have a digital copy of an original document.

By contrast, ‘digitalisation’ is the act of converting anything into a digitally readable format. Digitalised

data enable computer programmes to automatically execute tasks without the need for human

intervention. In practice, this means completing forms online to enable software processes to act upon

the machine-readable, ‘intelligent’ information.

While many Proptech companies currently offer digitalised platforms which could streamline the

property transaction process, the real estate industry is slow at adopting these new technologies, and

it is arguable that the most significant transformation yet to take place is the normalisation of



technologies which automate current manual procedures. For this to occur, a step beyond digitisation

must prevail and the data upon which the industry runs must be digitalised.

Chapter 3 uses a case study and a focus group to map the conveyancing process used in England

and Wales. Through this process we examine the current use of digitised technologies and outline

the key causes for delay within a commercial property conveyance.

In Chapter 4, we focus on the extent to which emerging digitalised technologies could solve these

causes of delay and speed the broader property transaction process. These include blockchain and

smart contracts, artificial intelligence and lease extraction technologies, machine learning and

automated valuation models, the internet of things and property passports, virtual reality and satellite

technologies. While we focus on commercial transactions, we also draw on the experience of the high

street conveyancing firms and residential markets to explore common issues.

By conducting interviews with various Proptech start-ups and technology experts within major

commercial real estate companies, we explore the barriers to adoption which exist for these emerging

technologies and begin to highlight some of the pre-requisites needed before any real ‘disruption’ to

the current process of a transaction can occur.

We conclude in Chapter 5 with a summary of our findings.



2. Conveyancing and registration processes

2.1 Introduction

Many economists and philosophers have expressed concern about the private ownership of land

(Ryan-Collins et al, 2017). However, for those fortunate enough to be landowners it is vital to be able

to prove land title. Land title provides financial protection, a store of value and a potential source of

debt finance. If secure title is guaranteed by a reliable land registration system, land can be used to

create wealth for the broader benefit of society and contribute to the eradication of poverty (World

Bank, 2004). Insecure title to land prevents people from taking full advantage of its productive capacity

and limits economic growth.

Land is a unique commodity: it is indestructible and immoveable, and it is possible for many people

and the public to have a multiplicity of interests over the same piece of land. Examples of public rights

are those imposed by planning systems. Claimants of private rights over any piece of land can include:

- the freeholder(s) owns the plot of land in perpetuity

- the lender(s) finances a purchase and receives part of the ownership rights

- the leaseholder(s) leases the plot of land from the freeholder for a long-term interest

- the tenant(s) rents parts, or the full plot, of land from the freeholder, usually for a short-term

interest

- spouses have occupation rights granted through family law

- adjoining neighbours may possess an easement such as the right to sunlight or a right of way

through part of the land (this can also be held by the freeholder over their neighbours)

- third party organisations have holding rights including:

- covenants: restrictions placed upon the land use

- mines and minerals: ownership of any natural resource found beneath the Earth’s surface

- chancel repairs: the local church may have a right to charge locals for any maintenance

This very simplified account of the rights and liabilities which might affect a piece of land illustrates

how necessary a robust land title is for its trustworthy transfer. An example of the potential complexity

of the rights and restrictions attached to title is shown in Appendix 1.

Conveyancing is the practical application of land law, the business of creating and transferring rights

in land. The relevant law is that of England and Wales, which does not apply in other parts of the

United Kingdom. However, English imperialism has left its legacy and many other parts of the world

use a similar common law system, including large parts of Africa as well as Australia, the US, Canada

and the Caribbean.

A transparent and digital land registry, in which all land-related information is publicly available, all

procedures and property transactions are clear, and information on fees for public services is easy to

access, eliminates asymmetrical information between users and officials with respect to services

provided by the land administration, thereby reducing disputes and increasing the efficiency of the

real estate market (World Bank, 2018).



Her Majesty’s Land Registry (HMLR) is responsible for recording the mapping and legal ownership in

England and Wales in order to establish the legitimacy of any such interests. While the UK market

benefits from being first in Jones Lang LaSalle’s 2018 Global Real Estate Transparency Index (Jones

Lang LaSalle, 2018), its digital registration process is currently ranked 47th out of 190 global

economies on the 2018 World Bank’s Ease of Registering Property Index (World Bank, 2018). (It

should be noted that both of these metrics fail to separate out the processes in Scotland, Northern

Ireland and the Channel Islands from England and Wales and thus may be skewed accordingly).

In this chapter we will outline the main components of the current England and Wales conveyancing

and registration processes and identify delays in the transaction process identified by previous

studies.

2.2 The England and Wales conveyancing process

The success of a property transfer can be measured by how closely the conveyancing process

conforms to initial expectations, and the most important determinant of a successful property transfer

is probably whether settlement occurs at its intended time. Expectations may be unrealistic, or

intended time periods may be over-optimistic, but there is little doubt that delays (over-runs in

transaction times beyond expectations) are a common feature of the current paper-based systems

which operate around the world. In the UK, a report by The New Statesman (2018) found that delays

occurred in close to 40% of all transactions surveyed.

Conveyancing in England and Wales is a ‘reserved activity’ under Section 12 of the Legal Services

Act 2007. This means that it may only be carried out by authorised parties: solicitors, legal executives,

or licenced conveyancers. In the institutional market, real estate deals are overwhelming brokered by

investment surveyors from a handful of established firms. Indeed, with some institutional deals, there

is never a public advertising process. Deals are brokered and concluded behind closed doors.

As most consumer/buyers must borrow money to purchase their home, the process is dominated by

what their lenders want or are prepared to accept. Ninety percent of residential mortgages are carried

out by members of the residential mortgage lenders’ trade association, UK Finance. UK Finance

produces a handbook of what lenders expect conveyancers to do. It is usual for the buyer’s

conveyancer to also act for the mortgagee (lender), although if a conflict arises the conveyancer must

stop acting for both.

Traditionally, conveyancing was carried out by the parties’ local solicitors. The liberalisation of the

conveyancing to include ‘conveyancers’ (non-lawyers who had conveyancing qualifications and were

the member of the Chartered Institute of Licenced Conveyancers) opened up the market. However,

it was the internet that drove down the price of residential conveyancing: suddenly, non-local lawyers

with lower overheads were able to undertake a conveyance for lower fees. Any online search will

bring up a plethora of online conveyancers offering to work more quickly and cheaply.



Figure 1: The UK commercial conveyancing process

Source: Investment Property Forum, 2012



Another factor in the commoditisation of residential conveyancing was the streamlining and

standardisation of the conveyancing process driven by such works as the Encyclopaedia of Forms

and Precedents and online sources such as Lexis Nexis and Practical Law.

Standardisation of documentation and process is a necessary pre-cursor to computerisation, and The

Law Society’s conveyancing protocol for residential transactions is very widely used. The protocol

must be used by anyone who is acting for a member of UK Finance, covering an overwhelming

majority of conveyances. The protocol identifies at least 150 separate steps in the process, depending

on whether a conveyancer is acting for seller, or buyer and lender, and whether the property is

freehold or leasehold. The process allows the simpler tasks to be done by machine or by less qualified

staff under the supervision of an appropriately qualified lawyer.

The basic processes of conveyancing in residential and commercial work are the same. However, in

institutional (larger commercial) transactions - a shopping centre sale, say - the subject property will

almost always be tenanted; and the building might have a complicated ownership with freeholder,

leaseholder and numerous tenants, and rights over common parts. We focus particularly on these

larger transactions.

International conveyancing systems are briefly explored in Appendix 2.

Areas of inefficiency within the UK transaction process

McNamara (1998) identified the four periods needed for a successful property transaction. These are

the preparation period; the marketing period; the due diligence period; and the settlement (or post-

exchange) period. Critically, this study identified that, across all property types, the marketing phase

of a property took the most time, followed by due diligence requirements. For a detailed description

of the tasks to be performed within the due diligence and post-completion periods see Figure 1.

An empirical attempt to quantify the time taken for each of McNamara’s four transaction periods was

undertaken by Crosby and McAllister (2004). They did so through obtaining data for over 187

properties from three commercial property companies.

Figure 2 charts the overall transaction times recorded for the sampled commercial properties. The

data allows a measure of the time from the first record of the proposed sale, which often coincides

with the date the agent was instructed, to the completion of the purchase. The average transaction

time for the 184 transactions where this information was recorded is 298 days, over 9 months.

However, this average is skewed by a small number of very long transactions: the median transaction

time is 190 days, or just over 6 months.

The longest process is the negotiation period, measured as the time from the first record of the

proposed sale to the agreement of price. The average time is 178 days, but again this is heavily

skewed, and the median is 88 days, nearly 3 months. This is consistent with McNamara’s findings of

what he dubbed the marketing period as being the longest process for any transaction. The due



diligence process, identified as the time between sale agreed and contract exchange, averages 83

days with a lower and less heavily skewed median of 62 days or 2 months, while the post-exchange

period averages 19 days or nearly 3 weeks.

Figure 2: Overall transaction time (days)Source: Crosby and McAllister, 2004

They also discovered that that the value of the property has very little effect on how long it takes to

sell. The relationship between price and total transaction time is not significantly different from zero.

Of equal interest is the fact that the various components of the process are not correlated: a long

marketing period is not followed by a long due diligence or completion period.

This study further explored the delays in the transaction process, characterising them as either

‘events’ or ‘discoveries’. An event was a human-initiated problem, for example tenant failure, while a

discovery was a step in the transaction process that was out of participant control, such as unknown

asset defects or individual financing issues. These delays were found to occur most often in the due

diligence stage of a transaction, with the four main influences identified as:

- Previously unknown or ignored inherent problems

- Changes in the asset e.g. tenant default

- Change in market conditions

- Changes in the circumstances of the purchaser, for example difficulty in obtaining debt finance

The use of debt was found to result in an additional due diligence process which could cause a major

delay or a re-assessment of the offer price. For an overview of how a commercial transaction process

alters through the use of corporate structures and debt, see Appendix 3.

The main conclusion drawn from this study was that a number of factors may cause delays in the

sales process highlighted by Figure 3. Temporary, solvable problems include title problems, tenant

disputes and outstanding rent reviews, issues that, if unresolved, would lead to a price well below

market value perceptions. Other factors may be intractable but temporary: these include rent reviews

and lease terminations.



Figure 3: Summary of findings from Crosby and McAllister (2004)

2.2.1 Digitising the conveyancing process

Those close to the process suggest that the real estate conveyancing world has experienced more

changes during the past 15 years than in the prior 300 years. The pressure for change is now

constant. Real estate conveyancing is going through a major change brought on by a new electronic

world (Gose, 2008), and numerous changes in both technology and culture are putting pressure on

the conveyance process to change. Greater interconnectivity brought about by advances in

technology has made the reliance on paper seem outdated. Dictated by societal preferences and

demand, technology is reshaping conveyancing processes globally (Doversberger, 2010).

The establishment of a single system connecting all the agencies that supply information involved in

property transfers can ease the conveyancing burden for firms or individuals. This single portal system

is what is generally known as ‘e-conveyancing’, where all documents needed for a transaction are

accessible to parties in a transaction through a single online platform.

The following three case studies, while residentially focused, will identify numerous issues with the

establishment of any single conveyancing portal, highlighting factors often overlooked when

advocating the adoption of fully functioning, innovative technology solutions.

Chain Matrix: an HMLR pilot scheme, 2008

In 2001, with internet-based technology newly available, the Law Commission published Land

Registration for the Twenty First Century (Law Commission, 2001). This report sets out preliminary

proposals to facilitate the implementation of e-conveyancing. The resulting legislative changes in the

Land Registration Act 2002 came into force on 13th October 2003.

At the time, Law Commission believed that: “within a comparatively short time, electronic

conveyancing will be the only method of conducting registered conveyancing. Investigation of title will



be almost entirely online. The technology will also provide a means of managing a chain of

transactions by monitoring them electronically. This will enable the cause of delays in any chain to be

identified and remedial action encouraged. It is anticipated that far fewer chains will break in

consequence and that transactions will be considerably expedited” (Law Society, 2017a).

HMLR set about piloting its own e-conveyancing platform called Chain Matrix in Autumn 2006. The

system would allow buyers, sellers, their legal representatives, estate agents and lenders to view the

progress of every transaction in a property chain, thus highlighting where a bottleneck exists and

notifying those responsible. HMLR thought that identifying the causes of the delays would encourage

those responsible to improve their efficiency and to minimise reputational risk. It hoped that this

platform would facilitate a simpler, more co-ordinated exchange of contracts and completion

(Doversberger, 2010).

A second new technology trialled as part of the Chain Matrix pilot was that of an Electronic Funds

Transfer (EFT) system, which would automatically execute a payment on behalf of the buyer to the

seller’s bank account on completion and validation of all Chain Matrix requirements, thus negating

the need for solicitors to hold funds in escrow prior to completion.

Chain Matrix was trialled in three cities in 2006-2007, and HM Land Registry planned to apply user

feedback and adapt the matrix accordingly. However, Chain Matrix was abandoned after £4.6m had

been spent on its trial.

While the technology worked successfully, the pilot failed because it attracted fewer than half the

participants originally hoped for (Doversberger, 2010). This absence of adoption by conveyancers led

to frequent breakages in the chain. Where one party had not adopted the platform, it required all other

immediate parties to revert to paper-based processes in order to facilitate a transaction.

According to an HMLR Land Registry employee close to the project, the biggest problem was the lack

of integration between Chain Matrix and solicitors’ individual case management systems. This led to

the need for data to be input into both systems separately and the duplicating of processes, or ‘double

keying’. As a result, any efficiency in time saving was lost.

HMLR’s Land Registry's official evaluation report on the Chain Matrix and EFT service prototypes

highlighted a reluctance by conveyancers to use the prototype. At one point, the disdain in England

for the new technologies became so severe that its application resulted in large numbers of retirement

among English real estate lawyers (Doversberger, 2010). The Guardian further added to claims

around the lack of social acceptance of the new system, reporting: “many citizens were not aware or

not convinced of the benefits and prevented their conveyancer from entering their transactions onto

Chain Matrix" (Cross, 2009).



PEXA: a current Australian model

In 2010, the Australia National E-Conveyancing Development Limited (now known as PEXA) was

created to deliver a single, national electronic conveyancing solution to the Australian property

industry. A study of the Australian housing market found that under the paper system one in five

property settlements were delayed, by a median period of seven days (PwC, 2015). The platform was

aimed at reducing these delays, as outlined in Figure 4.

Figure 4: The role of PEXA in the conveyancing processSource: Deloitte, 2018a

Despite the potential benefits of electronic settlement and ‘lodgement’, take-up of the PEXA platform

reached just over 1.1% for lodgement of transfer instruments in 2016-17. A 2018 report by Deloitte

attributed this disappointing result to high transition costs for practitioners, notably around the steep

learning requirement and the need to run duplicate paper processes due to at least one other party

to the transaction not being on PEXA. Deloitte concluded that the initial vision failed to foresee the

difficulties in implementing a national system. In particular, the initial analysis did not account for the

transition costs of moving towards a 100% solution.

Because the predicted efficiency benefits will only be realised once PEXA achieves 100% adoption,

the Australian government is intending to impose limits for mandatory compliance by 2022. This will

lead to time and cost savings to conveyancing firms (although consultations indicated that

practitioners do not expect to reduce prices when the industry reaches a 100% digital system

(Deloitte, 2018a)).

VEYO: a UK Law Society initiative, 2015

The Law Society, a professional association funded by membership fees from law firms in England

and Wales, spent millions of pounds on its Veyo initiative, a failed attempt at introducing mass-market

e-conveyancing. The service, due to launch in May 2015, aimed to allow solicitors, buyers, lenders

and estate agents to monitor transactions in real time, speeding up the conveyancing process by

allowing solicitors to upload and amend documents securely online (Pickford, 2015). Despite

recognising a need for critical mass and offering increased transparency and trust, the scheme was

later scrapped. What this highly anticipated product offering had failed to consider was the emergence

of alternative software providers, able to both outperform and undercut VEYO.



“part of the reason [for VEYO’s failure] is due to a change in the market, with other software providers

having been better able to respond to firm’s needs and the rising cost of Veyo outweighing the benefits

… there was a lack of clarity in regard to the integration with search providers, HMRC and mortgage

lender approval of the project. As it stood in the first phase, only conveyancers had access to the

portal, with no other agencies being integrated, meaning practitioners still have to juggle their case

management system, HMLR’s portal, and search providers’ databases ….nothing was in one place.”

(Solomons, 2016).

The Chain Matrix and VEYO cases introduce a key thesis (Bower and Christensen, 1995): profit-

driven private businesses may be more likely to introduce radical change than established industry

consortia. On the other hand, PEXA shows that government action may impose change from above.

The actions of all three actors (business, government and institutions) plus public support are all

needed to contribute to radical change: we will return to this issue in Chapter 4.4.

2.2.2 Current technology: data rooms and cloud computing

Within commercial conveyancing, a type of technology known as a data room is used. This is a single

portal that connects all parties and their advisers, and provides a repository for transaction

information. Data rooms have been made possible through advances in cloud computing, where large

files can be stored and accessed through an offsite network. This means that clients and advisers are

freed from the need for expensive and complex in-house hardware. While data rooms are by no

means specific solutions for real estate transactions, they are increasingly used by commercial

conveyancers. Within a cloud-based data room using application programme interfaces, or APIs (a

set of functions and procedures that allow applications to access the features or data of an operating

system, application, or other service), it is possible to share information between the various parties

involved in the transaction.

2.3 England and Wales land registration

Globally, the best registration systems tend to have simple fast-track procedures, digital registration,

low transfer taxes, fixed registration fees and time limits for administrative procedures. They have

introduced compliance procedures to keep registration disputes away from court proceedings and

they also make the use of notaries and lawyers optional (World Bank, 2018). A comparison of

international land registration systems can be found in Appendix 4.

The process in the UK is currently ranked 47th out of 190 global economies on the World Bank’s Ease

of Registering Property Index 2018, requiring six procedures which take an average of 21.5 days to

complete at an average of 4.8% cost of the total property value (World Bank Database, 2018). This

includes property transfer taxes (stamp duty).



Figure 5: Global property registration processes: procedures, time and cost comparisonSource: World Bank, 2013

According to the World Bank (2007), lowering fees is the simplest way to make property registration

more efficient. Charging fees and taxes on a percentage basis encourages fraudulent declarations of

property values, and a fixed fee would be helpful. In England and Wales, property transfer taxes

contribute significantly to the illiquidity of real estate as an asset class; maximum efficiency property

transactions require the abolition of transfer taxes and their replacement by annual property taxes, as

recommended by many, including the Adam Smith Institute (2017).

Depending upon the adopted system in any particular jurisdiction, proof of title can be established

either by a land registration system focussed on the stock of land, or by a deed offering proof of the

transfer of title. The deed system, based on flow rather than stock, does not require title registration,

just as the purchase of any commodity requires only a receipt to establish ownership.

A deed registration system means that the deed itself, a document which describes an isolated

transaction, is registered. This deed is evidence that a particular transaction took place but is not in

itself proof of the legal rights of the involved parties and, consequently, it is not evidence of legality.

Thus, before any dealing can be safely effected, the declared owner must trace his ownership back

to a good root of title.



Out of the England and Wales common law title registration system, two parallel systems of

conveyancing have emerged. In unregistered conveyancing, the seller has to show its right to sell by

providing documents that show its entitlement to do so. Where land is registered, the entry of the

proprietor’s name on the title of the property at HMLR is proof of legal ownership.

Comprehensive and accurate identification of exactly which rights are recognized over what land is a

key challenge for conveyancers. While the UK government has been keen to categorise and tax

property holdings, the process by which the buyer and seller get what they believe they have

contracted for is not straightforward.

2.3.1 Digitising Her Majesty’s Land Registry

Globally, digitising the land registry has been found to significantly reduce the time taken for a

transaction to occur (Figure 6).

Figure 6: Time savings through digitised property registrationSource: World Bank, 2009

From 2008 onwards, HMLR stopped storing new original documents. From this point, all documents

received by and within HMLR have been scanned and retained electronically. This process is still

ongoing due to the wealth of analogue historical data; there is no intention to create digitised copies

of many historic documents.

In 2017/18, 94.9% of service requests to HMLR were placed in a digitised format through electronic

channels (HMLR, 2018c). The majority of these requests are lodged as PDF documents which limits

opportunities for process efficiency and cost improvements through automation (digitalisation).

Scanned records, while a big step up from paper-based databases, still rely on manual interpretation

to extract information.



3. Real estate transactions today

3.1 Introduction

Data is fundamental at every stage in a property’s lifecycle. When buying an asset, investors need

information about building operations, cash flows, maintenance and capital expenses, potential risks,

market assumptions, tenancy schedules and more. This data needs to be transferred efficiently from

and to previous and current owners, legal advisors, property managers and others, but this process

is commonly subject to inefficiency and delays.

Within real estate, analogue and digitised techniques still continue to define how we collect, interpret,

manage, transact and record this data. These techniques include actions such as the arduous reading

and understanding of lease clauses, the physical printing, signing and scanning/posting of paper

contracts and the interpretation of hand-drawn plot boundaries on a poorly-copied PDF map. While

these processes may be difficult and time-consuming, the end result seems to be a trusted system of

transferring and recording land ownership: London is often said to be a target for global capital

because of the reliability of this system, and the UK is ranked first in Jones Lang LaSalle’s 2018

Global Real Estate Transparency Index, which includes Land and Property Registration as one of its

input variables.

Despite this, the wider economic transition towards digital technologies is putting pressure on the real

estate industry to follow suit: “The current structure of real estate transactions incentivizes and

rewards agents to take large percentages that just aren't necessary given the emergence of new

technologies that make searching for properties, communicating and transacting easier than ever

before” (Fraser, 2018a); “the data needed should not be held in the filing cabinets of solicitors offices

but in a digital format with the plot of land to be transacted...the current practices required by the UK

legal system are outdated… conveyancing has become a process for the conveyancers and not the

end consumer…the current use of technology simply digitises existing poor procedures” (interview

with Simon Davies, Nimbus Maps).

There are underlying process changes which need to occur before technology can be successfully

implemented. Problems include the format in which data is held; incompatibility in the systems which

enable the data to be used; and a reluctance to guarantee the accuracy of information by a seller to

a buyer in the transaction.

At their most extreme, the perceived inefficiency of established practices include professionals re-

digitalising already digitalised documents: printing from a digitalised file, and then signing, scanning

and returning the paper document to a counterparty who uses lease information extraction technology

to re-digitalise the necessary data. To what extent are these practices the major causes of transaction

delays? Where are the bottlenecks in the transaction process?



3.2 Causes for delay within the England and Wales conveyancingprocess: a process map

We now focus on the major causes of delays within the current commercial conveyancing process in

England and Wales. In exploring this, we brought together HM Land Registry, two major law firms

(BCLP and Anon-Firm) and a leading real estate advisory firm (CBRE) through the medium of a case-

based focus group aided by a process map defining the transaction process for a small office building

(Figure 7).

The case

- Address: 6 St Giles Court, Reading, RG1 2QL

- Occupier: Property Funds Research

- Owner/vendor: ABC Ltd Retirement Scheme, acquired in December 2000 for £112,500

- Acting for vendor: Anon-Firm, CBRE

- Buyer: Kingsgate Residential acting on behalf of an unknown private individual

- Acting for buyer: BCLP, Kingsgate

- Agreed purchase price: £187,500

- Financing: 100% equity

Figure 7: The plot of land to be transferred (BK280355)

Title No: BK338096Address: None listedFH Owner: St Giles CourtManagement Company Limited

Title No: BK272410Address: 6 SOUTHAMPTONSTREET, READING, RG1 2QLFH Owner: Not listed

Title No: BK280355No other info listed

No info listed

Title No: BK274420Address: ST GILES COURTSOUTHAMPTON STREET,READING, RG1 2QLFH Owner: Not listed




Title No: BK274444Address: ST GILES COURTSOUTHAMPTON STREET,READING, RG1 2QLFH Owner: Reading BoroughCouncil



A transaction mapping exercise was used to highlight key causes for delay in the current process of

commercial conveyancing. We began by identifying the process stages. Based on the studies by

McNamara (1998) and Crosby and McAllister (2004), real estate transactions are characterized by

four different stages. These are: the preparation period, the marketing period, the due diligence

period, and exchange to completion, referred to in this report as the post-exchange period. We add

an additional fifth stage, the post-completion period, incorporating the title registration process.

The preparation period

This period begins with a trigger event – the vendor decides to sell. The vendor assembles the

relevant data in consultation with his/her lawyer and real estate advisor or property manager and

instructs the adviser or a third party to act as broker/selling agent and to prepare some marketing

materials.

Cause for delay #1: the vendor may not have maintained accurate or digital records of relevant

information

It is the duty of the selling agent in conjunction with the seller’s lawyers to collect as much relevant

information about the property as possible in order that an accurate asking price can be set. As the

selling agent is motivated by a quick sale and will not collect a fee until a successful transaction has

been completed (Levitt and Dubner, 2005), it is in the agent’s interest to present relevant, accurate,

up to date data to pre-empt and reduce any future delays. This task will not only reduce the transaction

time but will also minimise the risk of a price chip or, worse still, an aborted purchase.

This first problem arises when attempting to collate this required information. Data is often not readily

available, is sometimes lost, and is held in numerous formats across several organisations. Some of

this information will be outdated and found only in the completion pack from the vendor’s original

purchase of the property. With many vendors providing information which has been stored in paper

format, or composed of varied-quality scanned documents, the extraction of relevant data can

become a tedious, manual, unsatisfactory process.

Resulting questions about the accuracy of any information collected at this pre-sale phase leads to

the need for further checks throughout the conveyance process. The duplication of work from

solicitors on both sides of the transaction in obtaining and checking required documents in their

various forms and from various organisations is a major inefficiency. As Highman (2015) notes: “The

common problems with tenancy schedules are that they are not well maintained or completely

accurate and so they cannot be relied on. While they may be created from the original lease detail

entered into the ‘property management software system’, accuracy in the process is commonly

missing over time.”

Mistakes creep in when property managers or lawyers fail to read leases accurately and overlook

critical dates and/or lease clauses. This will then impact the tenancy schedule content and details.

While the terms of leases often change over the duration of the tenancy, the lease schedule is rarely

updated to reflect the revised position.



If the seller were required to warrant that the tenancy schedule is correct, this would serve as

motivation to keep details up to date and a lot of the duplication of processes during this pre-sale

stage could be avoided. But the seller is not required to do this – caveat emptor is the basis of contract

law, meaning that that the buyer alone is responsible for checking the quality and suitability of goods

before a purchase is made. Caveat emptor adds a hugely powerful dose of realism when a pension

fund is acquiring a very complex commercial property. To reverse this would require a change in

contract law - a little unlikely for such a fundamental and deeply-embedded principle - or the more

widespread adoption of institutionally-agreed representations and warranties insurance, which is

rarely used outside the larger more complex real estate transaction.

The marketing period

During this stage the vendor’s agent makes the marketing data available to the potential buyers and

their advisers. Note that caveat emptor means that the broker is not responsible for the accuracy of

any information, even if it is expressed via a glossy sales brochure. Prospective buyers will generally

visit the property and may carry out non-intrusive surveys, and they may also use drones, GPS and/or

virtual reality to avoid the need for or to supplement visits. The seller’s solicitors will make some basic

information available to the potential buyers through the data room, but the buyer will feel responsible

for assembling a lot of information at this point.

The selling agent asks for bids (over one, two, maybe three rounds); and eventually agrees heads of

terms with purchaser. The parties agree a target time schedule for exchange and completion –

probably over-optimistically.

Cause for delay #2: inconsistent approaches to data rooms

Even within an individual firm, many of the software packages used during a transaction do not match

up. The same information describing a tenancy schedule could pass through many different digital

programmes before finalisation. The lack of integration between the software used to produce

spreadsheets and tables with that used for creating detailed legal information packs is compounded

by individual firms having their own systems for logging the extracted information and uploading

documents for file sharing, all the while editing formatting errors and navigating differing file storage

protocols.

Despite the best efforts of the seller’s solicitor to consult their own historical database as well as all

holders of relevant property information, there is still a feeling that this will inevitably still fall short of

the information requested by the buyer’s solicitor: each property is unique, and the vendor cannot

always predict what the buyer’s solicitor is going to ask for.

The lack of a standardised format within data rooms leads to disorganised headings for folders

uploaded by third parties. This makes locating any relevant uploaded information a more difficult

process than is necessary. Differing software systems at individual firms may have blocks on

downloading files whose names contain certain characters which do not meet the requirements of

their cyber-security firewall. This is particularly pertinent in cases where the seller’s solicitor does not

have the capability to host a data room and instead uses a generic file sharing platform such as



Microsoft’s Dropbox.

The due diligence period

During the due diligence period, the buyer’s legal team runs searches of utility providers, local

authorities and others who hold or may hold information relevant to the value or future utility of the

property. They will normally use a specialist agent to do this (such as Search Acumen, for example).

Such private businesses can be expected to innovate efficient data solutions: see, for example,

PlaceTech, 2019.

Cause for delay #3: performing adequate searches via under-resourced or non-motivated authorities

and utilities companies

The search process may create significant delays. This may be due to inefficiency and under-

investment in record-keeping; cutbacks in the government funding of local authorities; or a lack of

motivation where the search fee (if there is one) does not cover the work involved.

The topic of discussion which took up most time during the mapping process was to do with the

bottlenecks existing within the search process. With some authorities taking up to 40 days to respond

to requests for information, this stage undoubtedly has the potential to cause the biggest stumbling

blocks for any transaction. Despite caveat emptor placing the cost of any missed search information

onto the buyer’s side of the transaction, the time it takes for search information to be received means

that this process is sometimes initiated by the seller’s solicitor so that exchange can take place on

or before the desired deadline. This approach raises its own issues including confusion over who

may place reliance on the results and the fact that searches quickly become out of date and

therefore unacceptable, particularly where there is a debt funder. An alternative approach is for the

buyer to arrange for insurance to cover the fact either that they have not initiated the search

process at all, or that they are still awaiting some results. The latter approach, whilst pragmatic, is

frustrating for buyers who are effectively paying twice for what they hope will be the same outcome.

Every property deal requires the same set of standard searches, while more complicated properties

and transactions will require additional information. A wide range of data needed for either scenario

is held by third party organisations and a considerable amount is maintained within local governments’

land charge departments. Local land charge departments are responsible for holding and providing

information relating to specific rights over the land including charges recoverable by local authorities

for statutory works, planning conditions, tree preservation orders, community infrastructure levies,

compulsory purchase orders, conservation areas, listed buildings and light obstruction notices.

Depending on the operational structure of these different departments, each unique to the local

authority in which the property is located, this information could be held in a manner of mixed formats.

For example, according to Search Acumen, Brighton still uses card indexes, making it one of the

hardest authorities to deal with, while the most efficient search requests are completed by previously

privatised departments such as the environment agency.

Despite the clearly superior performance of departments and local authorities with higher levels of

funding or digitisation, the system of requesting data has not changed in line with advances in modern



technology. Necessary search information still needs to be individually requested from each

department in order to achieve the degree of due diligence required for a property transaction.

Additionally, most of this information is not openly available to the public, producing a monopoly over

its distribution and allowing local authorities to set charges at a level they desire.

However, there is hope on the horizon. HM Land Registry is currently working towards a

comprehensive, national, digitised Local Land Charges system, allowing solicitors to access important

data for land and property searches that previously took up to 40 days to receive when processed by

local authority systems. Graham Farrant, chief executive and chief land registrar at HM Land Registry,

commented: “By centralising and digitising the local land charges information of local authorities in

England, we are helping to improve conveyancing. Search results from the new register will be

instantly available in a standard, easy-to-read format”. The service was first launched on 11 July 2018

with Warwick District Council. Several local authorities are currently working with HM Land Registry

to migrate their Local Land Charges data to this central register. Once all English local authorities

migrate their data, the digital register on the government’s website will offer instant search results to

anyone in England (Isherwood, 2018).

Cause for delay #4: identifying the correct parcel: no single, true plan

HM Land Registry deals with around 20 million enquiries each year; 5.5 million of these concern

changes to title. 25 million titles are held, and HM Land Registry holds 30 million scanned deeds.

Because HM Land Registry is not digitalised, there are inconsistencies between the paper and/or

digitised maps held by HMLR, the plans given to conveyancers, the parcels of land identified on any

site visit and the boundaries provided by geolocation or satellite imaging technology. Boundaries can

become a major cause of dispute. One of the reasons why HM Land Registry is not yet digitalised is

a fear that the number of disputes created by differences between any attempt at an official, digitalised

map and what exists on the ground may completely clog the system. Figure 8 shows how in some

counties of the UK as much as 33% of land is not registered at all, making this process of true parcel

ownership and identification ever more difficult.

Establishing authoritative data is compounded by HM Land Registry’s use of the general boundaries

principle. As opposed to fixed boundaries, where the precise geometrically surveyed co-ordinates of

any parcel of land are entered into the register and legally guaranteed as fixed, the general boundaries

principle relies mainly on physical boundary features, man-made or natural. These physical

boundaries are sometimes flexible. Without any requirement to register precise survey data, there is

no legal record of exactly who has rights to certain plots of land. A common example used is ‘the

hedge and ditch scenario’, where a land owner has dug a ditch along his boundary line and used the

excess soil to plant an adjacent hedge. Under general boundaries it becomes difficult to determine

whether the land owner has legal rights over the ditch, the hedge, the central point of one or the other,

both or neither. In an urban setting where small strips of land can hold large value, disputes occur

more frequently, centred around movable boundaries such as fences, walls and footpaths.

Historical registry techniques identified these general boundaries using a pencil outline drawn upon

a low-resolution map. Subsequent manual copying of these historical maps along with more modern



digitisation and subsequent transference between online data rooms has created many variations of

the same ‘truthful’ boundary. Some of these difficulties can arise from issues as trivial as the

sharpness of pencil and scale of map used, whereby in some instances the blurred or faded mapped

boundary line can represent an area metres in width on the ground.

Figure 8: The coverage of HM Land Register by county (Dec 2018)Source: HMLR, 2018b

Further difficulties exist in the label with which different organisations use to identify the parcel of land

to be transferred. There are several ways to locate a single parcel of real property, regardless of any

boundary variations. The most common identifier used is the postal address and post code. However,

anyone who has tried entering a postcode into an outdated satellite navigation system will know this

is fraught with problems and that postcodes can cover several properties. Ordnance Survey grid

references provide another positioning identifier, but members of the general public typically do not

know the exact grid reference of the property they own.

Search providers will identify real estate parcels using a Unique Property Reference Number or UPRN

(a unique alphanumeric Ordinance Survey identifier for every spatial address in Great Britain



providing a comprehensive, complete, consistent identifier throughout a property's life cycle), but this

does not overcome the problem of vertical division. Our example transaction plot in Figure 7 is labelled

BK280355. This is an example of the Land Registry Title Number. Utility companies will all use

separate account reference numbers for the same billing address. This lack of consistency of

identification can also have financial implications through local authorities often attributing numerous

parcels to the same property, leading to multiple search charges.

Cause for delay #5: completing standard enquiry forms: caveat emptor

A report into the US housing market by Nanda (2012) found that the average sales price of houses in

a metropolitan area increased by an additional 3 to 4% over a four-year period if the state had adopted

a Property Condition Disclosure Law. HMLR has developed a parallel disclosure mechanism. The

Commercial Property Standard Enquiry Forms or CPSEs were introduced in 2002 to reduce

bottlenecks during the due diligence period. They provide an interesting case study in the context of

this report.

The CPSEs were prepared by, and continue to be maintained by, the London Property Support

Lawyers Group, whose members are drawn from about 20 major law firms, both London and national.

The project was sponsored by the British Property Federation, whose endorsement was a sign that

the CPSEs were developed to benefit owners and managers of property and not only lawyers. They

are made available, free of charge, through the British Property Federation website (BPF, 2019).

For commercial property, form CPSE 1 is designed to cover all transactions, whether freehold or

leasehold, vacant or tenanted. The following supplemental enquiries are intended to be used in

conjunction with CPSE 1:

- CPSE 2: where the property is sold subject to commercial tenancies.

- CPSE 3: where a lease of a property is being granted.

- CPSE 4: where the property is being sold is leasehold.

- CPSE 5: where a lease of a property is being surrendered.

The rationale behind the CPSEs is that if known information about any potential risks involving the

transaction of the property were disclosed by the seller prior to exchange of contracts, this would

speed up the due diligence process on the buyer’s side and create a more efficient timeline by

avoiding any late re-negotiations. This is supported by findings by Stern (2007) who revealed that the

timing at which information, particularly about any defects, is revealed to the purchaser during the

conveyancing process plays a significant role in both the eventual negotiated purchase price and the

speed at which the transaction occurs. Defect disclosure which takes place during or before the search

process rather than the contracting or offer period drastically reduces information-processing delays.

The CPSEs should also reduce the time and effort necessary in transactions burdened with a lack of

transparency, while also reducing the number of uncompleted transactions.

Disappointingly, CPSEs have served to cause further unwanted bottlenecks, due once again to the

nature of caveat emptor. Although sellers do have a duty of care not to misrepresent any issues that

affect the property, some sellers lack the motivation to go through the unnecessary burden of

attempting to locate information relating, for example, to fire safety deficiencies or asbestos and

potentially reducing their negotiating power. Although there is still a risk of misrepresentation, many



enquiries on this form are completed with terms to the effect that “the buyer should rely upon its own

searches and enquiries”.

However, caveat emptor is unlikely to be overturned as a principle of contract law. Our focus group

commented that if England and Wales were to switch to a system whereby the seller had to warrant

the accuracy of this information, a larger problem could occur if the trusted disclosures genuinely

missed important information. This was a secondary finding of Nanda (2012): within the US states

which had adopted a Property Condition Disclosure Law, lawsuits relating to undisclosed information

increased dramatically. For this reason, in the absence of standard insurance coverage it would be

difficult to employ a conveyancing framework under which caveat venditor, or seller beware, existed.

Cause for delay #6: reviewing and reporting using non-integrated software

Once the buyer’s solicitor has received all the necessary documentation it is then her duty to run her

own set of due diligence checks on the information provided and request any outstanding details. In

light of any unwanted findings, she will report the information provided in order that the buyer and his

team might formulate a new offer, opening up the possibility of another phase of negotiations and

possible transaction failure.

In reporting to the client, the buyer’s solicitor will consolidate all necessary information into one report

including planning advice, rights of and burdens on the title, and key information on the occupational

leases. Extracting the relevant information for this report once again throws up the issue of data

formats.

The siloed operations of each party within a transaction has led to the growth of specific technologies

focused on one specific aspect of a real estate transaction, showing little understanding or

consideration for other, related industries’ data requirements. While technology has been designed

which can smooth certain operations, many tasks still rely on archaic platforms, designed with no real

estate specific purpose. Many additional enquiries have no standardised structure or platform and

instead rely upon an individual’s preferred habits and often a heavy reliance on the use of Microsoft

Word and Outlook.

The most up to date, and by no means universally-used, lease information extraction technologies

use artificial intelligence systems to identify the relevant terms and clauses from a contract to create

a digitalised, machine readable copy, saving human data inputting time and error. While data

extraction technologies such as Leverton, Kira and HighQ (which are now commonly used within the

legal profession) can recognise key points such as landlords, tenants, rents and terms, these systems

are unable as yet to deal effectively with complexity. Crucially neither do they register (at any

meaningful level) with those on the agency side of the transaction, where data platforms such as

Yardi and Argus are the common language.

Robert Sanderson, managing director of legal software firm Ochresoft, recently spoke of how the level

of technology being utilised by many conveyancers is relatively basic and increases the risk of

fraudulent activity, adding: “Exchange of information through insecure email is the absolute root cause



of the misdirection of funds. It’s the elephant in the room” (New Statesman, 2018).

The post-exchange period

In many transactions there is a period of time between exchange of contracts and

completion/closing/settlement. During this post exchange period the parties will have time to comply

with any conditions precedent (conditions that must be complied with before completion can take

place). This will often include gaining the consent of a third party to the transaction. They will also tidy

up administrative details, accounting records, agree completion apportionments and move money to

the right place in readiness for completion.

The post-completion period

After completion, Stamp Duty Land Tax is required to be paid within 14 days of completion. Title is

then registered using HMLR form AP1, generally submitted electronically by the purchaser’s solicitor.

HMLR aims to return this form within five days.

Cause for delay #7: filing for registration: a lack of transparency over requisitions and delays in

registration

When a transfer of ownership takes place, it is required by law that the new ownership of the property

is registered with the government through Her Majesty’s Land Registry. This process is often done

through the online portal or business gateway provided by HM Land Registry, which dealt with 94.9%

of service requests in 2017/18 (HMLR, 2018c).

HMLR (based on the current interpretation of the Land Registration Act 2002) does not yet recognise

digital signatures, such as an encrypted thumb print or a secure computer password, for ID verification

on title transfers. Any registration of a transaction still requires a personal signature. Although HMLR

has recently developed the capacity to register digital mortgages, this is currently not possible for all

required transaction documentation.

To ensure the validity of any transfer of title, HMLR must first run checks on the information provided

and consult their database for any prior issues (for example, disputes between previous owners)

which have not been resolved and which may prevent them from legally registering a new owner.

HMLR must also deal with applications in the order in which they are received. This means that

complicated titles can often create large backlogs. Where title registration cannot be validated and

therefore processed, a query known as a requisition is raised of the buyer’s solicitor.

Andrew Robertson, head of customer policy at HMLR, states: “In the first six months of 2017, our

caseworkers sent over 450,000 requisitions, covering nearly 700,000 individual points. We send

5,500 requisitions daily: the equivalent of processing 139,000 updates to existing registers or 19,000

new title applications over the course of one year. And these numbers only show the cost to us. There

is also, of course, a cost to conveyancers.” (Robertson, 2017)



While requisitions relating to the incorrect completion of required documentation are generally easily

resolved, the key cause of frustration for the conveyancing community is the delay in receiving a

substantive response to an application and the lack of practical guidance to allow solicitors to prepare

applications in such a way to avoid the requisitions in the first place. There are also issues where third

parties refuse to give consent for evidence required to clear titles of historic charges and

encumbrances. Free-format requisitions are those which cannot be easily categorised and currently

make up 25% of all cases (Robertson, 2017).

A major implication of this delay between completion and registration (often referred to as the

‘registration gap’) is that during this period the new owner is not able to raise debt or finance the

property and holds no official rights over its occupation. So common is this delay that clauses exist in

most contracts for the seller (and registered legal owner) to act on behalf of the buyer while the

requisitions are dealt with.

It is suggested that more transparent information over the potential for requisitions on a particular title

could be made available early on in a transaction to allow parties to prepare the requisite paperwork

while there is still a commercial incentive to do so, thus saving time and money for all concerned.

3.2.1 Analysis of the causes for delay

The most causes for delay exist within the due diligence period of a commercial real estate

transaction.

It is evident that many of the identified causes for delay represent either a data storage or transfer

issue. If we were to start from new, and design an ideal system for modern property transactions,

what steps would need to be implemented?

All participants to the mapping process agreed that an openly accessible, single pool of up to date,

standardised property information could reduce most of the bottlenecks highlighted, although

concerns over the implications this would have for data security would remain. This follows IPF (2004),

which concluded that there is no one ideal source of transaction data for commercial real estate.

It was suggested that not all information needs to be standardised, but if each property carried with it

an industry-defined set of required up-to-date information that would impact most on its ease of

transaction, this would be a good start. This information could be traded along with the title of a

property and form a necessary foundation upon which technology can be iteratively laid. This leads

to ideas about ‘property passports’ or ‘log books’.

A 2018 report from the British Property Federation and Future Cities Catapult cited the establishment

of a property passport as one of the key drivers to foster innovation within the real estate industry:

“Data and information about built assets will play an increasingly important role in enabling innovation



and creating more frictionless transactions across the property lifecycle. Whilst initiatives such as BIM

[Building Information Modelling] will create more consistent asset information in the future, data about

the mass of existing property will continue to be unstructured. Organisations such as RICS, the Centre

for Digital Built Britain, BPF and BEIS should work together and with industry to develop a property

passport. This would be a data standard for core information to be generated and maintained

throughout the property lifecycle and for different users. This might include core asset, financial and

building performance information, and could build on recent BEIS consultation on standards for smart

systems and a flexible energy system. Our recommendation is for the property industry and

government to work together to set up a property passport with common data standards for core

information.” (BPF and FCC, 2018).

However, the impact of technology will (in the absence of top-down regulatory change) be restrained

by old-fashioned risk aversion and conservatism. If we can imagine the veracity of the data held in a

property passport being guaranteed and backed by representations and warranties insurance, then

the due diligence phase may be significantly quicker. Insurance packages will seek to provide

protection against false or missing information. Lower insurance premiums could be offered to

landlords in exchange for accurate information, enabling a more accurate predictor of risk. Similar

enhanced terms could be offered by lending organisations who have a vested interest in compiling

as much accurate and up to date information about a property as possible.

Property passports and many other digitalised technology applications are considered fully in Chapter

4.



4. The future of real estate transactions

4.1 Introduction

In Chapter 3, we identified the causes for delay in commercial real estate transactions. It is clear that

removing these bottlenecks would speed up property transactions. The aim of this chapter is to

explore how this may be achieved. Amongst others, Dijkstra (2017) points us towards digital

technology: “Contracts, transactions, and the (associated) records … are fundamental for the

commercial real estate industry. However, the management of those assets has not kept up with the

economy’s digital transformation” (Dijkstra, 2017).

Before we embark on what may appear to be an optimistic vision of the near future, we should attach

a couple of reservations. First, some of the potential solutions are being developed specifically for the

high street conveyancing firms and the commodity-like residential markets. Second, the size and

complexity of larger institutional transactions, and the capital sums involved for both equity and debt

investor, may severely limit the appetite of the major actors to transfer risk management measures

away from trusted human and towards machines.

Notwithstanding these reservations, we believe that the correct regulatory environment coupled with

a group of currently available or emerging technologies could facilitate an openly accessible, single

pool of up-to-date, standardised property information which will act as a foundation for more efficient

transactions. In this chapter we will draw on an extensive literature review and interviews to highlight

the operational, regulatory and social barriers which need to be overcome before technology can

flourish.

4.2 Digitalising the transaction process

Given the size of the asset class and the money involved, it is not surprising that the world of real

estate is awash with new companies and technologies attempting to automate and innovate almost

every stage of the transaction process. Start-ups offering products to streamline the transaction

process are underpinned by a number of key technologies, utilised in differing quantities and

combinations.

4.2.1 Satellites and drones

Satellite technology allows boundaries to be inspected using a multitude of new imaging methods.

Orbital Witness and Nimbus Maps both use satellite imagery to innovate the preliminary investigations

of title, while digitalised techniques are also being used to assess the physical condition of properties.

The real estate industry is currently the second biggest user of commercial drone technology (after

photography). It is becoming an essential part of the necessary due diligence undertaken for a real

estate transaction, as well as enabling the use of aerial photography during the marketing period.

“Drones can survey potential sites and conduct inspections quickly, increasing the efficiency of site

selection, inspections, regular maintenance and more. They can also reduce risks by ensuring all

parties have more comprehensive and thorough information about a property. They make conducting

inspections safer, as they eliminate or reduce the need for someone to climb up onto roofs and other



tall structures to perform them.” (Welles, 2018).

Figure 9: Marketing footage from a droneSource: Drone Dispatch, 2017

4.2.2 Blockchain transactions: smart contracts

Blockchain has the capability to transform all global ownership records and transaction processes for

every conceivable asset type. It has spawned a generation of apostles: see, for example, Tapscott

and Tapscott, 2016. In Blockchain: Towards Disruption in the Real Estate Sector, Dijkstra (2017)

summarises the potential effects of blockchain technology on the real estate transaction process:

“A first major change through the application of blockchain lies in the registration and processes of

Blockchain technology

Blockchain offers a new way of storing, accessing and processing digitalised information. Blockchain files

are intended to be immutable and held in a decentralised manner (distributed ledger technology) enabling

access for trusted parties. This openly accessible, real time, ‘single point of truth’ is the key factor leading

to the current experimentation with blockchain in all major sectors of the economy.

Blockchain is also said to offer durability, because there is no centralised repository. It would not be possible

for a natural disaster or a cyber attack to disable the many discrete repositories of the blockchain. As any

one party cannot alter the chain unilaterally, it also offers a greater degree of transparency and authenticity

over more conventional architectures, which can potentially be tampered with.

For a more detailed explanation of the underlying distributed ledger technology or “blockchain”, please refer

to Saïd Business School (2017): Proptech 3.0: The Future of Real Estate, Chapter 7.



real estate titles, due diligence processes, simplification of currently complex transactions, faster

turnaround times of transactions and more liquidity. Blockchain’s technology allows contracts to be

smart and can therefore be executed under predetermined conditions. Real estate finance can also

be further automated with Blockchain, or it can contribute to the simplification of crowdfunding. The

big advantage of these movements is that the real estate market will become more transparent, the

quality of real estate data will increase, and fraud prevention becomes more effective.”

Blockchain is not a single operating system, but the underlying technology upon which different

protocols are built. Ethereum is one of the major blockchain protocols currently in existence, along

with Bitcoin, Ripple and HyperLedger. Each protocol has its own unique blockchain code and each

has advantages over the other in terms of transaction speeds, storage capabilities and application.

The Ethereum blockchain is currently the most relevant of these, due to its enhanced ability to power

smart contracts.

A ‘smart contract’ is the name given to a piece of computer code that is capable of monitoring,

executing and enforcing an agreement (Szabo, 1996). It has been suggested that smart contracts, in

conjunction with distributed ledger technology, would be a way of revolutionising real estate

transactions. For example, a smart contract could simultaneously transfer funds from buyer to seller

while registering the buyer as the new real estate title holder, once all contracts had been digitally

signed, exchanged and validated.

Deloitte (2017) hypothesise how a new blockchain based model of transacting real estate could

function, shown in Figure 10.

Residential-focused smart contracts are being piloted to varying degrees of success by start-ups

ChromaWay in Sweden, and Propy, predominantly in the USA, but also facilitating cross border

transactions, as well as the Cook County Recorder of Deeds, USA, and HMLR, England and Wales.

The ChromaWay model

In their 2017 report Blockchain and real estate: mining unexplored terrain, Deloitte state that a serious

inefficiency under the present conveyancing process is that “auditors, banks, financial authorities,

appraisers and owners each individually have to validate the data which they receive. All these

validations result in higher transaction costs in the brokerage, legal, recording, and banker fees”

(Deloitte, 2017).

ChromaWay, based in Sweden, has developed a private blockchain-based transaction system to

eliminate the need for multiple verifications of the same data. In June 2018, they revealed a live

demonstration of a fully integrated blockchain transaction involving collaboration from the Swedish

land registry as well as numerous IT companies. In the press release for this event, it was stated that

the pilot was aimed at solving the regulatory issues surrounding blockchain real estate transactions

(ChromaWay, 2018).



Figure 10: Using blockchain in a commercial real estate transactionSource: Deloitte, 2017

Two key barriers emerged from this process. The first involved problems around identity verification,

with the demonstration using existing centralised technology to validate signatures throughout the

chain of transactions. The second related to the legal recognition of blockchain-based contracts, with

the necessary contracts still needing to be converted into an EU standard format to be independently

evaluated. It is estimated that the successful development and implementation of their platform could

save Swedish taxpayers over €100 million a year (Fraser, 2018b), but the cost of the necessary

regulatory change was not estimated.



The Propy model

Propy are one of several companies credited with the world’s first ever blockchain-based property

transaction. In November 2017, Propy brokered the sale of an apartment in Kiev, Ukraine, to Michael

Arrington, co-founder of the technology media website TechCrunch, for $60,000 via smart contracts

on the Ethereum blockchain. They have since gone on to sell numerous properties in a similar fashion

in California and Vermont, USA, and in 2018 were involved in selling an Italian 17th century mansion

valued at around €40m by way of blockchain-based auction.

Due to legal constraints, blockchain-based transaction companies such as Propy are obliged to follow

the existing structure of a real estate transact

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